The 2012 growing season was severely impacted by a drought that covered most of the Midwest. This drought led the U.S. Department of Agriculture1 to report that food prices are likely to increase up to four percent in 2013. Much of the anticipated cost increase for food is driven by the country's corn and soybean prices, which had risen to an all time high. With corn yields below expected levels, and the demand increasing to feed livestock, produce ethanol, and manufacture sweeteners and other food products, consumers can expect to pay more at the grocery store and when they go out to eat.
A January 2012 USDA study2 shows that the average monthly grocery bill for a household of four in the United States ranges from $548 to $1,244, depending on the age of the children in the household and how thrifty the family is with its food purchases. This number does not include the amount families spend out to eat, which accounts for about 5.7 percent of consumer spending. With the anticipated increase in food prices caused by drought, these numbers could increase by $18 to $56 per month. This increase may not seem like much, but it can add up over the course of several years if food prices stay elevated or continue to rise. Budgeting and planning now for food costs can help save you time and cash in the future.
Here are several tips to help you manage your monthly food bill as well as other items that may rise in price in the future.
1) Establish your monthly or weekly grocery budget. If you frequent the grocery store every week or several times per week, chances are you spend more on groceries than you think. It is wise to monitor your food bill (including when you go out to eat) so you know exactly how much you should budget. Once you determine your average weekly expenses for food and dining out, set a weekly budget and stick to it.
2) Make a grocery list before you shop. Food products that will likely see the largest price increases due to the shortage of grain include beef and veal. If your grocery list includes hamburger and steak each week, consider purchasing other lower cost meats and proteins instead.
3) Avoid convenience stores. Out of milk, bread, and eggs? Do not rush to the nearest convenience store to replenish food staples. Neighborhood convenience stores are designed to be accessible and you will likely pay for the convenience. On average, the convenience store markup on food items may be 10, 20, 30 percent or higher more than the grocery store.
4) Monitor what you spend on non-food items. Other commodity prices, especially those related to products made from corn, may also rise due to the shortfall in 2012 corn yields. It is always a good idea to monitor what you pay for staple items for your home and fuel for your vehicle.
Commodity prices will always fluctuate, but as demand rises on these items (and in some cases, supply decreases due to natural disasters, impacts on trading, or other factors), preparing for the increase in cost of living for these small, but unavoidable, expenses can help save you budget headaches along the way.
1 http://www.ers.usda.gov/data-products/food-price-outlook.aspx, United States Department of Agriculture Consumer Price Index Food Price Outlook data, Updated November 23, 2012
2 http://www.cnpp.usda.gov/Publications/FoodPlans/2012/CostofFoodJan2012.pdf, Official USDA Food Plans: Cost of Food at Home at Four Levels, U.S. Average, issued February 2012
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This communication is published in the United States for Texas only; and this advisor is licensed only in the states of CA, CO, FL, MO, NC, NM, OK, TX, and VA.
M. Ahmad Adnan, CFP®, CRPC®, RFC®
Business Financial Advisor
Ameriprise Financial Services, Inc.
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